Jett and I are going into this RV retirement adventure with a commitment to do it for one year and an expectation that it will be much longer. Regardless of how long we live in the RV, we need to plan for long-term retirement. Neither of us wants to resume working full-time again. Ever. It is time for the next generation to take over our phoney baloney jobs.
So we need to budget for a sustainable lifestyle, whatever it may be. As tempting as it is to take all of our assets and have a year-long retirement celebration, that would be unwise as neither of us would enjoy the cardboard box lifestyle that would follow. We need monthly income that will, on average, match or exceed our monthly expenses, which, if you have been paying attention, we are estimating at $5,695 through 2013 and $4,765 thereafter.
The first question – and not a simple one to answer – is how much income we can expect from Social Security? Assuming that Social Security will still exist in two years and hasn’t succumbed to the GOP efforts to dismantle the US government, the amount we receive depends primarily on when we register for benefits. As I will be 63 in 2012, I could register then, which would make life easier in the short term, but with diminished benefits for the rest of my life. Jett, who turns 61 in 2012, doesn’t have an option until 2013.
I am determined to make it to the end of 2013 without drawing on Social Security. The difference in monthly income that comes with waiting a year is about $150 which in my view makes waiting worthwhile. If we both start drawing in 2014, which happens to coincide with the drop in our monthly expenses, due to the termination of orthodontia and auto lease obligations and me getting on Medicare, we can start taking it a little easier. Under that plan we would be getting about $3,200 per month in Social Security income. This is taxable, of course, but at a low rate. At that point a monthly supplemental income of $2,200 between the two of us would give us $5,400 per month – comfortably above the $4,765 monthly outflow estimate after taxes. There would even be enough to sock some away for rig replacement if we were committed to continuing the fulltimer RV lifestyle then.
That leaves the final 3 months of 2012 and all of 2013 to get through without breaking the bank. We will operate at a deficit, so the question is how much can we absorb without running out of cash.
That is a question of assets. Ten years ago our retirement plan was simple (and, we thought, foolproof): invest in real estate and sell it (at huge profits, of course) when we retired. Well, the real estate bubble and all those idiots who invented mortgage-backed securities ruined that plan. We still own two properties, but if we sold them now or even within the next year we would take a huge loss. We may not be “under water” but we are certainly in it up to our necks.
So we want to do this without selling our real estate. For planning purposes we will assume that they will draw rents that will cover their expenses and therefore will be self-sustaining. This is a big assumption and I will talk more about this later, I am sure, but for budgeting purposes they might as well not exist.
So what assets are available? The main ones are my IRA and Jett’s 401K. Other more-or-less liquid assets include our vehicles (a car and a truck), some household items that can be sold and some good old fashioned cash. All told, it is about $190,000. Not a lot to retire on and certainly not as much as I expected to have when I reached retirement age. But enough. So this is the plan:
- Buy a rig for $65,000 (about $40,000 for the coach and about $20,000 for a used 1-ton diesel pickup, $5,000 for taxes, registration and preparation).
- Pay off all outstanding credit card debt (about $10,000 on 10/1/2012).
- Spend about $5,000 preparing the house for rental (mostly new carpets, plus some repairs).
- Spend about $2,000 on stuff for the RV. This may include another TV and possibly a bicycle or small scooter.
- Rent a campground site for the summer of 2012 for about $2,000. This will allow us to grow into the RV lifestyle while still having a house.
These are the “startup costs” and they total $84,000. That leaves assets of about $106,000 at the time we hit the road. Since we have estimates for expenses, it is then just a matter of figuring out how much we need to earn to make ends meet. The answer is about $2,200 per month once we start collecting. If we also earned $2,200 a month through 2013 we would actually still have cash through the four-year period. We would operate at a deficit through 2013, but would still have over $20,000 in the coffers at the end of 2013. Then Social Security would start to kick in and we would break even, then start to salt a little away each month. By the end of 2016 we would have more than $23,000.
If all goes according to plan. Yeah.
While having just $20,000 available in case of emergency does not make me feel like Rockefeller, remember that that cash is backed by two parcels of real estate which, Benanke willing, will be worth more in 2014 than they are today.
I won’t bore you with any more details. I felt it would be worthwhile to write this page, to prove that Jett and I have actually thought this through. Yes, there are plenty of assumptions and risks, but I also think that in some respects this budget is fairly conservative. We could, I am sure, cut expenses significantly if required to do so. I also think that making more than $2,200 per month is very possible. It is, after all, less than one sixth of what we bring home now.
But earning money on the road will be different that having two steady jobs. Where will that $2,200 come from each month?